Czech Republic: VAT on rental of residential properties from 2021

Rental of real estate in the Czech Republic, with a few exceptions (for instance rental of parking spaces), is VAT exempt without the entitlement to deduct input VAT from incoming transactions.

Taxpayers can decide that output VAT will apply when renting real estate to another VAT payer for economic activities. In this way, taxpayers can achieve being entitled for input VAT deduction from received transactions.

With effect from 1 January 2021, however, some exceptions have been established, in which this will no longer be possible. This applies to the rental of property for permanent residence, therefore, mainly to apartments and houses.

From 2021, the owner of the property is therefore obliged to exempt their rental from VAT, without the right to deduct VAT from input transactions.

At the same time, taxpayers must also adjust their deduction of input VAT. This adjustment is carried out for a period of 10 years beginning as of the year in which the property intended for housing had been acquired.

Example: A VAT payer bought a flat from a developer in 2020 for EUR 1.5 million. The flat was rented to another VAT payer applying VAT, which allowed the landlord to use the entitlement to deduct input VAT of EUR 150,000 in 2020.

As of 2021, the landlord will have to carry out adjustments of input VAT deduction for the next 9 years, each one at a rate of one tenth of the applied input VAT deduction. In other words, from 2021 to 2029, they will have to repay EUR 15,000 to the state budget in December.

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